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Cost of sales went up 19% to $2 billion from the year-earlier quarter. Gross profit came in at $531 million in the quarter, jumping 26% from $420 million recorded in the year-earlier quarter. Gross margin came in at 21%, expanding 100 basis points (bps) year over year.

Selling, general and administrative expenses flared up 23% year over year to $277 million. Adjusted income from operations surged 48.3% year over year to $145 million. Consequently, operating margin advanced 100 bps year over year to 5.7%.

Segment Performance

Sales at the North America segment increased 18.9% year over year to $531.8 million in the fourth quarter. The segment reported operating income of $12 million, as against loss of $4.9 million incurred in the year-ago quarter.

Sales at the South America segment climbed 2.5% year over year to $315.9 million. The segment reported operating income of $0.7 million compared to $13.6 million recorded in the year-earlier quarter.

The EAME (Europe/ Africa/ Middle East) segment’s sales came in at $1,434.6 million, up 25.9% from the year-ago quarter. EAME’s operating income climbed 34% to $163.4 million from $122 million reported in the prior-year quarter.

Sales at the Asia/Pacific segment jumped 23% year over year to $245 million from $199 million recorded a year ago. The segment reported income of $25.6 million, up a whopping 126.5% from the year-ago quarter.

2017 Performance

AGCO reported adjusted earnings per share of $3.02 in 2017, up 22.3% from $2.47 per share recorded in the prior year. Earnings came in line with the Zacks Consensus Estimate. Including one-time items, the bottom line came in at $2.32, up 18% from $1.96 recorded in 2016.

Revenues were up 12% year over year to $8.3 billion from $7.4 billion recorded in 2016. Revenues surpassed the Zacks Consensus Estimate of $8.1 billion.

Financial Update

AGCO reported cash and cash equivalents of $367.7 million at the end of fourth-quarter 2017, down from $429.7 million at 2016 end. Cash flow from operations came in at $577.6 million in 2017 compared to $369.5 million recorded last year.

Guidance

AGCO guided that its net sales for 2018 will be around $9.1 billion, reflecting year-over-year growth of 9.6%. This is backed by improved sales volumes, positive pricing, as well as acquisition and foreign currency translation impacts. AGCO expects its earnings per share in 2018 will be around $3.50. It also anticipates gross and operating margins to improve from the 2017 levels, driven by the positive impact of pricing and cost-reduction efforts, partially offset by elevated engineering expenses.

AGCO remains optimistic about industry conditions in 2018 which have been trending positively from the lower end of the agricultural equipment cycle in key markets. Further, the company will continue to make long-term investments to raise the efficiency of factories, improve service levels and strengthen product offerings. It will also remain focused on cost management which will aid margins.

AGCO projects industry tractor sales to be relatively flat in 2018 compared to the previous year, with some modest improvements in combines and hay equipment. Farm income in 2018 is expected to improve modestly driven primarily by better dairy economics and higher 2017 wheat production. Thus, the company expects farmer sentiment to remain positive and 2018 demand to be relatively flat compared to prior-year levels.

AGCO projects its industry sales will be flat to modestly up in 2018 compared to 2017 in South America. Moreover, increasing demand for commodities, driven by the growing world population, rising emerging market protein consumption and biofuel use are anticipated to support elevated farm income over the long term.

Share Price Performance

Over the past year, AGCO has underperformed the industry with respect to price performance. The stock has gained around 5.2%, while the industry recorded growth of 37.2%.

Applied Industrial Technologies has a long-term earnings growth rate of 12%. Its shares have appreciated 23.6%, over the past six months.

Dover has a long-term earnings growth rate of 13%. The company’s shares have rallied 14.9% during the same time frame.

Deere has a long-term earnings growth rate of 8.2%. The stock has gained 22.6% in six months’ time.

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